Friday, 21 November 2008

WASHINGTON (Reuters) - Democratic congressional leaders, seeking to salvage a bailout of the Big Three automakers, demanded executives provide a business survival plan in exchange for their support of up to $25 billion in loans.

The ultimatum came on Thursday after the Democratic leaders failed to persuade the White House and congressional Republicans to use part of a $700 billion financial rescue fund to prop up the auto industry.

Hanging in the balance is the future of General Motors, Ford Motor and Chrysler LLC, whose losses have mounted during a severe economic downturn that has prompted Americans to largely stop buying cars.

Shares of GM and Ford rebounded from multi-decade lows as the developments in Washington kept bailout hopes alive.

While many lawmakers are anxious to see the companies survive, Republicans have been more wary of whether the money would really help, and Democrats have been more inclined to be generous to the huge employers of unionized labor.

Democratic leaders acknowledged on Thursday a growing public resentment over government bailouts of U.S. business in slowing the automakers' demands, saying they will take a look after the auto industry provides a roadmap to its survival.

House of Representatives Speaker Nancy Pelosi, a California Democrat, and Senate Majority Leader Harry Reid, a Nevada Democrat, told a news conference that the automakers must develop a bailout proposal by December 2 and it would be considered during the week of December 8.

"Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future... we cannot show them the money," Pelosi said.

Said Reid: "We can only help if they (the automakers) are willing to help themselves."

Both General Motors and Ford pledged to cooperate.

Amid warnings that General Motors might be facing bankruptcy by the end of the year, a bipartisan group of U.S. senators sketched out a possible compromise.

The White House said President George W. Bush could support the proposal spearheaded by Sen. Carl Levin, a Michigan Democrat, and Sen. Christopher Bond, a Missouri Republican, to allow automakers and their suppliers to use $25 billion in Energy Department loans for greener cars to address their current crisis.

The senators attached a heavy Washington hand. They proposed letting the government veto any auto investments or asset sales over $25 million.

Keeping a low profile was President-elect Barack Obama, who earlier in the week said U.S. automakers needed a government rescue but the help should be conditioned on changes in the industry.

EXECUTIVES CRITICIZED

The Big Three's executives testified on Capitol Hill this week about their dire economic situation, but undercut their argument by flying to Washington aboard corporate jets instead of taking cheaper transportation.

"I know it wasn't planned, but these guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nevada, or Las Vegas, or Reno, or any other place in this country," Reid said.

The automakers' woes have added to a chaotic U.S. economic picture, with fears that a failure to get a bailout would lead to thousands more layoffs and deepen what many economists believe are recession conditions.

In Detroit, United Auto Workers President Ron Gettelfinger said lawmakers need to take immediate action on a $25 billion loan bill to support the U.S. automakers or one or more could fail by the end of the year.

"Inaction is simply not an option," he said.

Transplanted automakers are also feeling the pinch. Honda Motor Co Ltd said on Thursday it would cut another 18,000 units from its planned U.S. production in response to the industry downturn.

A bankruptcy of one or all of the Big Three could shake vast sections of the U.S. economy, an argument Democrats have emphasized. Some Republicans have argued a bankruptcy could allow the companies to make structural changes needed to assure their long-term survival.

Many analysts believe the Big Three need massive restructuring to reduce their costs and to produce cars that Americans will buy, after years of making gas-guzzling sport utility vehicles that have fallen out of favor after people got a taste of $4-a-gallon gasoline over the summer.

The White House and its Republican allies on Capitol Hill have drawn the line against extending part of the $700 billion financial industry bailout to the Big Three saying that could prompt other sagging industries to seek a government handout.

Instead, they have called on Democrats to back amending the $25 billion earmarked in September for meeting new fuel-efficiency standards as the way to help the Big Three.

Clint Currie, a transportation analyst at the Stanford Group in Washington, said he believes Congress will pass a bailout with harsh terms for the industry in January.

Senior management might have to leave and there might be major mandates for restructuring attached, he said.

"I think there's a fairly high likelihood that they'll pass an auto bailout in January, and from all indications it's not going to be something they're going to like," he said. "They're going to have to take it or leave it at that point."

Although share gains were tempered after Reid and Pelosi's criticism, GM closed up 3.2 percent at $2.88 and Ford ended 10.3 percent higher at $1.39, both on the New York Stock Exchange. Chrysler is owned by Cerberus Capital Management.

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